Legal personality is a concept which means that a person is capable of being subject of having legal rights and duties [Elizabeth A. Martin (2003). Oxford Dictionary of Law (7th ed. ed.)]. A person needs to have legal personality in order to have legal capacity which enables a person to enter into legal relationships and engage in lawful transactions.
There are two kinds of persons – natural and juridical. Natural persons refer to real people, juridical persons refer to a fiction created by law such as private and public corporations and organizations. Legal personality of a natural person begins at birth, a juridical person acquires legal personality once it is incorporated by law. While juridical persons have rights under the law, there are rights that are peculiar to natural persons. Natural persons are granted human rights such as the right to vote, freedom from torture or slavery, etc. A juridical person cannot act on its own without natural persons exercising its right to choose, communicating its choice and acting thereon. A juridical person needs natural persons in order to operate. The life of a natural person is limited, whereas a juridical person can exist perpetually. Shirley Plantation in Virginia is the oldest corporation in the United States (and the oldest family owned business too), having been created in 1613 and it’s still very much around. Sweden's Stora Kopparberg Bergslags Aktiebolag is the oldest in the world. It is an electrical and chemical supplies company, and although no one knows its exact age, documentary records show that it’s been around in 1288.
When a juridical entity is created, a corporation for example, it is treated as a person separate and distinct from a natural person. It’s assets and liabilities belong to the juridical person, not the natural person, so when the President of the company receives a notice to settle a corporate financial obligation, the debts are paid in the name of the corporation. In the same breath, when the president or other officers receive a report of assets or gains, it strictly belongs to the corporation. Unless authorized, a natural person has no business appropriating funds of the corporation for his personal gain, otherwise it becomes embezzlement.
The general rule is that a corporation is a person separate and distinct from the natural persons forming it, but this protection created by law has exceptions, and in some situations the courts have ruled that it is necessary to “pierce the corporate veil” and personal liability may attach to its officers and shareholders. The alter ego doctrine justifies the piercing of the corporate veil if it can be proven that there is in fact no separate personality between the juridical entity and the natural person representing it.
Courts will not hesitate to pierce the corporate veil if the Plaintiff proves that the juridical person is merely an alter ego created by the natural person to unlawfully shield himself from liability. Factors considered by courts to support the alter ego doctrine include: (1) capitalization – if it cannot stand on its own and personal funds are comingled with the juridical entity’s funds, it is presumed that the latter is a sham, (2) fraudulent behavior – characterized by dishonest and reckless actions; (3) formalities – juridical persons are expected to observe formalities in their dealings such as record of meetings and votes; and (4) size of the juridical entity – publicly traded corporations are apparently favored.
RCW 25.15.060 of the State of Washington provides that “Members of a limited liability company shall be personally liable for any act, debt, obligation, or liability of the limited liability company to the extent that shareholders of a Washington business corporation would be liable in analogous circumstances. In this regard, the court may consider the factors and policies set forth in established case law with regard to piercing the corporate veil, except that the failure to hold meetings of members or managers or the failure to observe formalities pertaining to the calling or conduct of meetings shall not be considered a factor tending to establish that the members have personal liability for any act, debt, obligation, or liability of the limited liability company if the certificate of formation and limited liability company agreement do not expressly require the holding of meetings of members or managers.
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